In a survey on the global outlook for 2009, the Economist Intelligence Unit (EIU) makes some stark and dire observations.
EIU believes that the economic crisis could last at least a couple of years. This view is increasingly shared by many economists. In his interview to the BBC on 12 February, Nobel Prize-winning economist Paul Krugman, too, expressed a similar view. He said the meltdown could last at least three years, and could spread over five years, maybe even longer.
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While the EIU survey says that China may hold the key to the world’s economic survival, many economists in India believe that it could be both India and China. These are the only two countries that could account for growth rates of at least 4.5%. And, as the EIU survey states, if China’s figures turn out to be worse than predicted, then even the worst-case figures could get further dented.
The key lies in increasing purchasing power. Money must go to small consumers so that they can spend. In China, it could mean political turmoil. If that cannot be checked, China will be in trouble. In India, the problem will be social. Politicians in this country have never allowed money to reach common folk—a lot gets siphoned off by the mafia comprising middlemen (abetted by politicians and the bureaucracy).
Across the world, banks will be compelled to lend more. In India, recipients of money may have to share it with the not-so-deserving. Can India’s politicians save India?
Scepticism is reinforced by the government’s inability to arrest the biggest scamsters and seize the end proceeds of ill-gotten funds. Infrastructure projects are being awarded at inflated costs, which will mean higher tolls and steeper electricity tariffs in addition to surging taxes and prices.
The purchasing power of people will thus wither away even before the money reaches them.
All pointers indicate greater social turmoil ahead if the right controlling measures are not put in place.
A $1.5 trillion scam?
Could this scam amount to as much as $1.45 trillion—more than the country’s gross domestic product?
On 4 February, Communist Party of India deputy general secretary S. Sudhakar Reddy wrote to Prime Minister Manmohan Singh asking him if the government had formally sought from some Swiss banks information on clandestine and unofficial deposits held by Indians there, which, “according to the report of Swiss Banking Association of 2006...(amount to) $1,456 billion and have grown further since then”.
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It is not known if the government has indeed asked for any information from the Swiss government, or whether the banks there will part with any details that Reddy wants the Indian public to have. After all, it involves some Rs72.65 trillion! Moreover, corrupt politicians and Swiss bankers do enjoy a very cosy unholy relationship.
But wait! There is more dirt! In March, Germany offered to share information it had on depositors who had accounts in banks in the tax haven of Liechtenstein. Germany came into possession of this information as part of its efforts to nab tax evaders. Its foreign intelligence agency, BND, managed to acquire client details of LTG Bank in Liechtenstein. LTG itself admits that information on about 1,400 clients was there in the “stolen data”, of which only 600 were Germans. The others included people from other countries, including India. The German government, and its spokesperson Thorstein Albig, announced that it would share information on accounts held in the tax haven without charging any fees.
Unlike the UK, Canada, Italy, Norway, Sweden, Finland and Ireland, that have acted on this offer, India’s finance ministry and the Prime Minister have chosen to sit quiet. A similar silence from India’s policymakers greets disclosures by some company bosses before investigators in Germany, France and the US, where they have confessed to paying bribes to Indian officials. No request from the Indian government for the names of the recipients of such sums has gone out. Is anyone surprised?
Policy watchers are pained at the government’s refusal to correct one of the biggest policy aberrations that former finance minister P. Chidambaram introduced in the country: exempting lawyers from paying service tax, while every other “service” (including chartered accountancy) has been brought under the purview of this tax. Such a benefit for the legal profession is both discriminatory and repugnant, they say. Unfortunately, it has been allowed to survive in the interim budget.
The other aberrational legacy of Chidambaram is the introduction of the rule which seeks to classify investment gains as speculative or non-speculative, without clearly defining what constitutes speculation. This has actually introduced an element of arbitrariness in income tax. Market players point out that all investments are speculative. They can be either classified as short-term or long-term speculative investments. Alternatively, investments of one type—say, in derivatives—could be treated for special tax treatment. But to define only some investments as being speculative is absurd, they add. This aberration, too, has remained uncorrected. So much for constitutional correctness.
R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at email@example.com
Graphics by Ahmed Raza Khan / Mint